Incoterms

What are they?

‘Incoterms’ is the short and snappy way of saying International Commercial Terms. First published way back in 1936, they’re a set of 11 rules defining who’s responsible for what during international transactions.

Why are they so important?

Because they’re known and accepted from Austin to Zanzibar. A requirement on every single commercial invoice, they greatly reduce the risk of potentially costly misunderstandings.

What do they cover?

Incoterms spell out all the tasks, risks and costs involved during the transaction of goods from seller to buyer.

The 3 most common Incoterms

EXW – Ex-Works

Buyer assumes almost all costs and risk throughout the shipping process

Seller’s only job is making sure the buyer can access the goods

Once the buyer has access, it’s all down to them (including loading the goods)

Risk transfers from seller to buyer:

At the seller’s warehouse, offices or wherever the goods are being collected from.

DAP – Delivered At Place

Seller covers the costs and risk of transporting goods to an agreed address

Goods are classed as delivered when they’re at the address and ready to be unloaded

Export and import responsibilities are the same as DAT

Risk transfers from seller to buyer:

When goods are ready for unloading at the agreed address

DDP – Delivered Duty Paid

Seller takes almost all responsibility throughout the shipping process

They cover all costs and risk of transporting goods to the agreed address

Seller also makes sure goods are ready for unloading, fulfils export and import responsibilities and pays any duties

Risk transfers from seller to buyer:

When goods are ready for unloading at the agreed address.

The other Incoterms

CIP – Carriage And Insurance Paid To

Same seller responsibilities as CPT with one difference: the seller also pays for insuring the goods

Seller is only obliged to purchase the minimum possible cover

If the buyer wants more comprehensive insurance, they have to organise it themselves

Risk transfers from seller to buyer:

When the buyer’s carrier receives the goods.

DAT – Delivered At Terminal

Seller is responsible for the costs and risk of delivering the goods to an agreed terminal

The terminal could be an airport, warehouse, road or container yard

Seller organises customs clearance and unloads the goods at the terminal

Buyer sorts import clearance and any related duties

Risk transfers from seller to buyer:

At the terminal.

FCA – Free Carrier

It’s the seller’s job to get the goods to the buyer’s carrier at an agreed location

Seller is also required to clear goods for export

Risk transfers from seller to buyer:

When the buyer’s carrier receives the goods.

CPT – Carriage Paid To

Same seller responsibilities as FCA with one difference: the seller covers delivery costs

As with FCA, it’s the seller’s responsibility to clear goods for export

Risk transfers from seller to buyer:

When the buyer’s carrier receives the goods.EXW – Ex-Works.

FAS – Free Alongside Ship

Seller assumes all costs and risk until goods have been delivered next to the ship

Buyer then takes over risk and takes care of export and import clearance

Risk transfers from seller to buyer:

When goods have been delivered next to the ship.

FOB – Free On Board

Seller assumes all costs and risk until goods have been delivered on board the ship

They also sort out export clearance

Buyer assumes all responsibilities as soon as the goods are on board

Risk transfers from seller to buyer:

When goods have been delivered onto the ship.

CFR – Cost And Freight

Seller has the same responsibilities as FOB but must also pay the cost of bringing the goods to the port

As with FIB, the buyer assumes all responsibilities as soon as the goods are on board

Risk transfers from seller to buyer:

When goods are on the ship.

CIF – Cost, Insurance And Freight

Seller has the same obligations as CFR but must also cover insurance costs

As with CIF, they’re only required to purchase the minimum cover

If the buyer requires more comprehensive insurance, they have to pay for it themselves